BOJ Stands Pat on Stimulus, Fueling Pressure on Weak Yen

The BOJ kept its negative interest rate and the parameters of its yield curve control program intact in an outcome predicted by all 46 economists surveyed by Bloomberg. It also maintained a pledge to add to its stimulus without hesitation if needed, a vow that offers yen bears a reason to keep betting against it.

The Federal Reserve’s decision this week to hold rates and telegraph the likelihood of one more rate hike pushed the Japanese currency to a fresh 10-month low of 148.46 against the dollar. The large gap between rates in Japan and the US is one of the main factors driving the yen down against the dollar.

While financial authorities have warned that they are prepared to step into markets again, a policy move by the BOJ would likely have more effect at stemming the tide. Given those comments and the continued weakness in the yen, some BOJ watchers saw a risk of the bank tweaking its forward guidance at the latest meeting. But the central bank reiterated in its statement a long-held pledge to add easing without hesitation if needed, signaling it’s still concerned about downside risks.

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